On Incentives …

Recent developments with Amazon and Boeing have compelled us to speak more clearly regarding our view on taxpayer-funded incentives – and the broader debate surrounding government-run “economic development” efforts.

Do we believe that such deals are good for our state? Or do they impose burdens on taxpayers and existing businesses that outweigh the economic benefits they provide?

First, we believe fundamentally that the less government has to do with the economy – the better.

It all boils down to a simple question: Do you believe that the invisible hand of the free market is better equipped to allocate scarce resources? Or would you rather put that responsibility in the hands of a bunch of politicians and overpaid government bureaucrats?

As libertarians, we have an ingrained contempt for government-run “jobs” schemes – epitomized in South Carolina by the speculative development disaster that is the University of South Carolina’s “Innovista” project.

Our state’s “top-down” approach to managing its economy – via our Commerce Department, our research universities or our anti-free market port system – has been a miserable failure, as evidenced by our high unemployment rate, low income levels and rampant poverty. Not only that, South Carolina’s ongoing refusal to implement long-overdue education reforms has exacerbated the poor performance of our worst-in-the-nation public school system (saddling our state with a glaring competitive disadvantage).

Without putting too fine a point on it, it’s time to try something different … or rather it’s time to try a lot of things differently.

For starters, if it were up to us we would implode the money-losing building that houses our state’s free-spending S.C. Commerce Department – and salt the earth when we were done. In addition to eliminating Commerce (and the S.C. Research Authority, Centers for Economic Excellence, etc.), we would forbid our state’s “research universities” from pissing any more money down the drain on so-called “job creation” efforts.

Any institution that disobeyed this edict would see its state funding evaporate.

Of course it’s not just the hundreds of millions of direct taxpayer funds going toward our state’s failed “industrial recruitment” efforts that are draining the life out of our economy – it’s also the hundreds of millions in targeted incentives that lawmakers are doling out. According to the S.C. Board of Economic Advisors (BEA) the state’s investment in “targeted tax credits” has soared from $34 million annually in 1998 to more than $1 billion a year today.

Some estimates have the total value of the recent Boeing package at more than $900 million – although under the current system (which permits these taxpayer-funded deals to be cloaked in a shroud of secrecy) we may never know how much money was promised.

Heck, even the chief architect of the Boeing deal – S.C. Sen. Hugh Leatherman – confessed after the fact that he wasn’t quite sure just how much money the state pledged to land the aircraft manufacturer.

Whatever the amount … was the deal worth 15,000 jobs (assuming Boeing follows through on its commitment)?

It’s hard to say …

We initially supported the Boeing deal, although here’s what we wrote the day after the big announcement was made:

Making a lasting impact on our state’s unemployment rate means improving our underlying business climate for companies that employ 50 or fewer employees – small businesses – the people who (oh by the way) produce 95% of the jobs in this state. Incentive packages are fine for big-game hunting, but as these numbers indicate the real solution is a climate that fosters small business growth and entrepreneurship.

More recently, during the 2010 gubernatorial campaign, here’s what we wrote shortly after then-candidate Nikki Haley proposed a God-awful status quo tax swap that failed to provide any relief to individual taxpayers:

.. of the 68,738 full-time employers currently doing business in South Carolina, 97.5 percent of them are small businesses. There are also 101,000 full-time self-employed South Carolinians. Obviously, most of these companies and individual income earners file individual returns, not corporate returns. That means they would get no relief under Haley’s plan – which would benefit only the largest corporations.

Obviously we’re all for cutting taxes, but as we said (when she unveiled her plan) we “hope Haley expands her scope and eventually proposes lowering the one tax that would actually create jobs and raise income levels in South Carolina – the individual income tax.”

Haley didn’t expand her plan – nor has she sought a single dime of tax relief for either small businesses or individual income earners since taking office. Also, she offered her tacit support for the Amazon deal – promising not to veto it if it reached her desk.

Look, it’s not that we object to companies being permitted to withhold certain tax payments as a condition of bringing jobs and capital investment to our state. We’re all for keeping money OUT of government’s grubby paws.

But therein lies the problem. Government never actually loses money on these deals – it just increases the tax burden on everybody else to cover what it would have otherwise brought in. Even more unfairly, a bunch of glad-handing, special interest-fed politicians are the ones deciding who gets these tax breaks – and who doesn’t get them – an inherently corrupt and self-perpetuating process.

Seriously … what would have happened if the estimated $1 billion in targeted tax breaks our state doled out last year had been evenly dispersed among the state’s 67,000 small businesses?

Heck … what would have happened if the $4 billion in so-called “economic stimulus” money dumped in South Carolina over the last two years was spread out evenly among those same businesses (instead of being poured into the black hole of state government)?

Our guess is that the Palmetto state would be experiencing an explosion of job growth …

And moving forward, what would happen if we eliminated our state’s individual income tax – i.e. the one tax most directly tied to job creation – and paid for it with a long-overdue reduction in the size and scope of government?

Again … the answers is obvious.

UPDATE: Beyond the reforms outlined above, we would also require our State Ports Authority to immediately accept private investment for the purpose of expanding our port infrastructure (with the state retaining ownership of those facilities), while implementing a universal parental choice plan for our K-12 system that imposed some long-overdue market-based accountability on this monument to inefficiency.